13 - The Australian Grains Industry - The power of flexibility (and how to think like a ninja)

How the author pictured himself...

A (frankly, depressingly) long time ago, I spent a semester at a university in Japan. In a moment of poor judgement, I decided to join a shorinji kenpo club. I chose this somewhat esoteric martial art because it appeared to involve less of the high, spinning round-house kicks and explosive dance moves that stood between me and grand-master status in the Brazilian capoeira scene. One of my strongest memories was a small, wiry black-belt who enjoyed showcasing his flexibility by putting me into various “locks” that were so painful I questioned whether he actually knew that the human elbow doesn’t have an omnidirectional range of motion. One time, after memorably disposing of someone twice his size during a sparring session, he said something in Japanese, which roughly translates to

“Use flexibility to defeat size”

At the time, I didn’t realise the nuance behind this seemingly simple statement. Martial arts in Japan began centuries ago with a simple objective – how to defeat an opponent who is stronger than you due to their greater physical strength or superior weaponry. To use “flexibility” to defeat someone stronger meant using a range of motions and adapting to any situation to turn it to your advantage. Often, central to these martial arts was the importance of neutralising the enemy’s natural size or strength advantage and then attacking their weak points. If we apply the same thinking to the competitive strategy for Australian grain exports, do we engage our competition in a battle of size and scale, or do we put on our ninja suits and look to attack our competitors’ weak spots?

...how he actually looked.

In our recent reporting on the (re) emergence of countries like Russia and Ukraine as major players in the global grain trade, we cited some dizzying numbers regarding their current grain production volumes and capacity for further expansion. Such findings lead to the question of how Australian grain exports can defend existing markets while at the same time carving out a position in new markets. The key question is –

Are we as an industry in a position where we can quickly identify a market opportunity or threat and then appropriately recalibrate our industry, including its supply chain?

The concept of flexibility found in the martial arts has its parallel in military strategy. In his treatise Flexibility: An Essential Principle of War, Major Thomas I. Eisiminger, Jr. defines flexibility as “…the requirement to maintain freedom of action through adaptation”.

Major Eisiminger further broke flexibility into two components –

Flexibility = Agility x Adaptability

Moreover, agility itself can be thought as containing two elements: movement and speed. It is beyond the scope of this one blog post to capture all the various ways in which we can apply the concept of flexibility and its components of adaptability, speed and movement to the Australian grains industry’s competitive strategy. However I can kick things off by mentioning some of the potential areas for exploration.

Crowdsource ideas about how best to be flexible. I would argue that identifying more paths to flexibility is itself a form of flexibility. Seeking and encouraging industry participants to volunteer their observations and proposals to promote flexibility will build on the strengths of the Australian grains industry. This thinking is also itself flexible as it scales down to the individual organisation, and indeed this is something we keep at the forefront of our thinking in AEGIC, because ideas that are fully or partially crowdsourced from outside the building will almost always be more robust.

Minimise path dependency effects – In the context of the issue at hand, I would define path dependency effects as those choices that then preclude other options. A hypothetical example might be a processing plant that can only process a specific crop. By choosing this approach, if there is an event that restricts supply of the crop in question, you are locked in and cannot switch to an alternative. Another example of this might be a situation where individual points along the value chain are calibrated for a specific grade or crop, making it more difficult to change horses mid race.

Encourage investment into flexible-use infrastructure that can adapt to intermittent supply disruptions, while remaining nimble enough to capture nascent market opportunities. There may even be opportunities where this is achieved via co-investment in shared-use infrastructure (either green-fields or existing) where each owner’s annual demand profile combines to either increase total throughput (and therefore, lower variable cost) or to plug holes in the calendar caused by the ebb and flow of supply and demand. We are already seeing examples of this at a number of export terminals around the country.

Opportunities for using a mix of fixed, temporary and on farm storageto minimise dead space and allow greater flexibility to move in concert with trade flows.

The above example also highlights a key element of flexibility that I cover in an upcoming post. Instinctively, we tend to focus on each node in the chain and evaluate it against a set of criteria. However, to use the above example, we could face a hypothetical situation where we achieve perfect flexibility in terms of our grain storage, breeding or classification as three discreet nodes, however, unless the connections between each node are flexible, this flexibility cannot be fully leveraged for commercial benefit.

Another example of flexibility that encompasses agility and adaptability is Australia's unique system of funding plant breeding. Sometimes, in order to appreciate something fully, you need to experience its absence, and some of our recent Black Sea work has provided us with this opportunity. This topic will be looked at in greater detail in an upcoming blog post.

Black Swans - As popularised by N.N. Taleb, building on the work of Karl Popper, is often simplified and used to represent high impact, unpredicted events.

One of the problems with planning for the future is that humans are proven hopeless forecasters. I have an online share trading account filled with a veritable corporate graveyard that is testament to this fact. In particular, we are terrible at estimating the frequency and impact of unforeseen “black swan” events. If I had told you, 20 years ago, that in a decade or so, large swathes of the USA population would suddenly start mimicking the diet of our paleolithic ancestors and then self-diagnose themselves with “gluten intolerance” (as distinct from coeliac), leading to sizable decreases in domestic wheat consumption, you would have thought me crazy.

So, it stands to reason that if we acknowledge the difficulty in predicting future changes to the nature of grain demand, the logical response is to instead focus on creating a flexible model that can turn on a dime when circumstances change.

Meantime, we would encourage you the readers, who no doubt have specific ideas regarding the topic of flexibility and how we as an industry can maximise its benefits of flexibility, to drop us a note via the contact page.

Peter Elliott is AEGIC's Manager of Strategy & Analysis. Prior to joining AEGIC, Peter was Regional Manager - Europe and The Americas for CBH Grain. Peter began his career working for the Japanese trade house Mitsui & Co. and prior to that, he lived in Kobe, Japan.

Note - At this stage, we have deliberately avoided opening the comments section on this blog, as there is a long track record of these to turning into ideological dumpster fires at the bottom of any article. However we strongly encourage you to get in touch via the contact page if you wish to let us know what we got right, what we got wrong and what we may have missed in any of our blog posts.